Negotiate as defined by Merriam-Webster is to confer with another to arrive at the settlement of some matter. The hunter has done their homework and found the perfect abode, the one he/she cannot live without, and the excitement builds. He/she has their Realtor write an offer they sign and submit to the Seller’s agent and wait. Sometimes word gets back fast or drags on seeming like an eternity. When it does arrive, the offer is not in the form of a contract but a counter offer. The counter is a good thing; it means the original offer is not too low. If the price is much lower then what the Seller is expecting he may just reject the offer and ask the Buyer to submit another more reasonable offer. However, the counter means you are in the game and now the fun starts. Everything in the offer is negotiable; however, in Texas, a few things are customary for the Seller to purchase, such as title insurance and a home warranty. When buying a house the Purchaser is not actually purchasing the property, he /she are buying a title to the abode, the right to occupy and use the space. Title insurance protects the document from claims and limitations placed on the title by others. This can save the Buyer a lot of heartache and financial loss. The home warranty is a one-year contract with a home warranty company and is different from homeowner’s insurance in that the warranty covers major appliances such as air conditioners, heaters, pools, and plumbing fixtures etc.
The typical negotiation points in an offer are price, repairs, closing costs, survey, closing date, and possession. Sometimes the option period is included and on rare occasions, escrow/earnest money. In order to determine a reasonable offer price, a good Realtor will perform a comprehensive market analysis (CMA/comp). This is the same procedure used by the Seller’s agent to set a price on the home so makes sense for the Shopper to do the same. A CMA compares similar properties in the same or comparable neighborhoods that recently sold, and averaging price per square foot of the abode. The house hunter will have a better understanding of the market value. Market value is a very important concept to understand when purchasing. Market value is the cash price that a willing buyer and a willing seller would freely agree upon, given reasonable exposure of the property to the marketplace, full information, and no undue compulsion to act.
The goal in all negotiations to find the true market value and this is hard, because many times the Seller has an over inflated assessment of his/her castle and on the other side the Buyer is unrealistic. A good house-hunting guide educates the Client while showing listings and explains the price differences of listings and coaches the Consumer on pricing. Sometimes repairs are needed and often are negotiated twice, once at the initial offer and a second time during the option period after a home inspection. Safety hazards are the number one concern for Buyers; these repairs are typically accepted by the owner, others such as updating and taste, not so much. Closing costs are also on the table. Certain loans have particular limitations on how much a Seller can contribute to closing costs. The well-informed house hunter must be aware requesting payment of closing costs reduces the overall bottom line of the house for the Seller, when negotiating both need consideration. The survey is required by the Title Company, sometimes the Seller has a copy of a good survey the Title Company can use, however if the owner has changed the foot print of his abode or has added a permanent fixture to the yard then a new survey is required. The time to close takes at least twenty-one days but depends on the lender or the type of purchase. Cash for instance quickens the closing time. Possession after closing depends on if the Seller requires more time to vacate the property. The option period is the time allowed by the Seller in which the Buyer can get out of the contract and not lose his/her escrow/earnest money. Typically, the length is ten days at a minimal cost. Escrow/earnest money guarantees the Buyer will come to the closing table; the cost is normally $1,000 per $100,000 of price, and both money for the option period and escrow/earnest money refunded at the closing table.
The current tight housing market has created the semi-new phenomena of multiple offers. In this case, several Buyers are after one castle and the Seller has many offers to consider. This almost creates a bidding situation however a Realtor is not a licensed auctioneer and it is illegal for them to create an auction, so the Seller’s agent cannot give the price of the highest offer to another Purchaser. Multiple offers create a nerve-wracking circumstance for house hunters and true market values can go out the window. Although, if he/she loves the house and no others are available, the Buyer may be tempted to offer a price above market value. If the Client is using cash, there is no problem, but when a loan is involved, especially FHA and VA loans then the house-hunter could find themselves with a low appraisal. The lending institute financing the loan typically does an appraisal of the home’s value to determine if the abode purchased provides enough collateral for the loan. If the loan is higher than the lenders appraised market value of the house, either the Buyer or the Seller must pay the difference. The house hunter may not have enough cash so it falls onto the Seller to lower her/his price. If this does not happen, the deal is dead.
Negotiations do not need to be difficult. As long as both parties are realistic and have good representation, this portion of the real estate process should be easy. One good hint for all potential house hunters is to be emotionally unattached to the abode prior to closing, easier said than done, but can produce a smarter purchase. See ya down the road. http://www.djlyons-realtor.com
As the New Year begins the North Texas real estate market is on fire. Homes are selling yet we find ourselves in a bit of a conundrum. Our area is running low on listings. This is great news for Sellers. Less competition and the law of supply and demand, higher prices, make this a good time to place your house on the market. However there are some pitfalls Sellers need to consider before making that step. I have listed the top ten mistakes for Sellers to avoid when listing a home. Drum roll please:
10. Waiting until spring to list – True that spring is the traditional time to list a home. Many place their home on the market during springtime in anticipation of the summer crowds. Kids are out of school and there is enough in between time before it starts up again. Spring is a very popular time and that is the problem. Your home will have more competition on the market. You may have more showings however you will have the same amount of actual Buyers but an increase of those who are just looking, tire kickers I like to call them. During the off seasons, late summer, fall and winter the serious Buyers are shopping. Showings may be less but those showings are to clients that are truly ready to purchase, business re-locations also more prevalent in the first quarter of the year, increasing your odds of making a sell. Do not discount placing your home on the market during the off-season.
9. Ignoring minor upgrades – Your home was good enough for you why wouldn’t be good enough for someone else? Maybe it will, maybe it won’t. The problem is you are limiting your pool of potential Buyers. Some upgrades are inexpensive to do yet make your home much more marketable. For instance removing wall paper and painting a wall or replacing worn carpeting or repairing that broken water heater, minor upgrades can make all the difference. On the flip side do not overdo it. Make sure your upgrades are cost-effective. Don’t spend thousands to get hundreds in return. Sit down with your Realtor and go over any planned renovations to determine if it will add value to your home.
8. Understanding your offer and know your contract – Since an offer turns into a contract once it is accepted and signed by all parties I combined the two into one. If you understand the offer you will understand your contract. Read over the offer carefully, ask questions, have your Realtor explain all the ins and outs and who is responsible for paying what. Offers can be overwhelming, especially to those who are not in the business. Who pays for closing costs? Who pays for the title insurance? Who pays for the survey? Who buys the home warranty? And what repairs is the Buyer requesting? These are only a few of the questions that will come up with an offer. When you understand the offer you will understand the contract.
7. Do not be insulted by a low ball offer – Your home is your castle, the saying is true. You have done your homework, completed some minor upgrades and placed your home on the market then some low life makes you an offer for $20 grand less than your asking price. The nerve of them! Do not and I repeat, do not! Walk away. The Seller must understand that this is just the first salvo in the negotiation process. Everyone is looking for a bargain. Buyers will throw out the bait in hopes that you will accept it but they generally know that it is a long-shot. Some may not have the funds to purchase your home however that will come out during the back and forth of negotiations. Others have the funds but again are looking for that bargain basement price. If they are serious they will negotiate upward until both parties have reached a fair and equitable agreement. Make sure you have enough cushion in your price to negotiate.
6. Shorting your listing time – The standard listing time for a home on the market is 6 months. We are fortunate in North Texas to have a very healthy real estate market. The first month of a listing is usually spent fixing up the home, taking photos and preparing all of the marketing materials as well as setting up the multiple listing services. If your home is priced correctly it will sell quickly. Unfortunately many are not. Anything under six months is simply too short of a period to expect that your home would be sold. Sometimes it takes a while to convince the Seller that he is priced too high. Sometimes the competition in an area that is very strong and sometimes the marketability of the area is weak. However giving some time, the competition can dwindle and the marketability can increase and when a new wave of Buyers begin to look your home can become very desirable. This takes a spell and anything less than 6 months is too short to expect anything, plus it is unfair to the Realtor who has spent his time and money advertising and preparing for your home to be sold. If the Realtor does not have enough time to sell your home, he won’t get paid.
5. Going it alone without researching – You are a “for sale by owner” type. You want to go it alone but do you know what it takes? Have you realistically priced your home? Have you exhausted all avenues of marketing? Do you know what those avenues are? What about contracts? Do you feel comfortable reviewing them alone? Selling a home is a lot of work. If you want to venture down that path do your homework!
4. Don’t be chincy with your advertising or your Realtor – If you go it alone this lands on your shoulders, if not it falls to the Realtor. Make sure you know how the Realtor will market your home. Make sure he or she has access to the Multiple Listing Services. Make sure you are getting maximum exposure over the internet. The internet is a key element to selling your home. Print advertising in this day is not nearly as effective as the internet. Also do not undercut your Realtor on his/her commission. Many Sellers try but is really a bad deal. The standard listing rate is 6% of the sales price. 3% goes to the Buyer’s agent 3% to the Seller’s agent. Out of the 3% the listing Broker can take as much as 50% of the 3%. Now your Realtor has five homes he/she is listing and you want them to cut 1% from their 1.5% they are taking in. The Broker never takes the cut it is always the Realtor. How far up the totem pole do you thing they are going to place your home? How much time will they spend to advertise your home compared to the others that they are getting full price? Will they be giving you a 100%? If your employee cut your salary by ½, how eager would you be to please them?
3. Don’t ambush your showings – Nothing kills a potential offer then staying at home when a Realtor shows up with a Buyer. To understand you must get into the mind of a typical Buyer. When a Buyer walks through your home they are trying to get a mental picture of the home being their own. If the Seller is there to greet them, automatically the Buyer realizes that this home belongs to someone else thus eliminating that picture in their mind and that is a bad thing. They cannot talk openly about what they like or dislike, the showing is awkward and it is just uncomfortable for all parties. That is not what you want you’re potential Buyer to feel as they leave your home. Get out of the house when a showing is scheduled. Go to the store, drive around or go to your neighbor’s home but you need to get out.
2. Not staging your home to sell – Beyond upgrades, beyond repairs, your home must be ready to show. What do I mean by ready? Back to the mental picture, the Buyers need to imagine the home belongs to them. If you have personal photos hanging on the wall, if you have your well-worn comfy chair sitting in the corner, if your children’s toys are spewed across a room, that picture in the Buyer’s mind is shattered. They realize they are in another’s home and it is a turn off. Other factors are also in play. Is the home sloppy, does it smell bad or are there bugs flying around? All of these are turn offs and can leave a Buyer shaking their heads and wondering why they wasted their time looking. Realtors can help you with this process.
And drum roll please for the number one mistake a Seller can make.
1. Pricing your home above market value – Out of everything mentioned this is the main killer of a potential offer. If your home is priced too high you will not even get a showing, market value rules. Buyer’s searching for a home on the internet will simply pass over yours for one that is within their budget. Those with a higher budget will pass over your home because they can find homes with better amenities for a better price. Thus no showings and no sell. If your home is moderately overpriced then you will get showings however you will not get offers. Both conditions can be rectified. A Realtor can perform a market analysis (comp) on your home comparing similar homes that have sold in your area and what the market price beared. When that price is determined then you add in for negotiations, closing costs and repairs. When you get an offer than you can start negotiations, price is everything.
See ya down the road!
The” for sale” sign is staked to the grassy earth for the world to see. Cars drive by, the phone rings every once in a while, possibly a showing or two but no results. The sign sits for four months while similar signs down the street have red and blue riders that read “sold” or “pending”. Then the time comes. The listing contract is over. The house you had for sale has expired on the Multiple Listing Services. What to do next. Extend the listing? Try to sell the home yourself? Take it off the market and wait til next summer to list the house again? All of those are valid options however now is the time to step back and take a good hard look at what went wrong. In today’s market every house should sell. Buyers are out searching and with historic low interest rates, a dwindling supply and lenders easing restrictions your property should sell.
So what went wrong? Selling a house is not magic. It’s not rocket science either. Selling takes only five components, location, condition, terms, marketing and price. Location is the only aspect you cannot control. Is your house located in a beautiful quiet neighborhood or are you across the street from railroad tracks? Are hi power lines running through your back yard? Are you near a busy highway or a shopping center? Do you live in an excellent school district? These factors can affect how fast or if your home sales. There is nothing you can do about location. You cannot easily move your home. The only way you can compensate for location is to strengthen the other four components. Condition is a controllable factor. Is your house run down? Do you have rotting wood siding? Are your gutters hanging off the eave? Does your abode smell like pets? Is the finish out like a throw back from 1970? Like before if one aspect is weak the other four must be strengthened, however condition is something the Seller can control. Sometimes it is worth hiring a handy man to fix up the broken parts of a house. Installing granite counter tops can be the difference. Possibly new carpeting is in order or professional cleaning to remove the pet odors. Terms are another factor. Are you only allowing showings between 3 – 5 pm? Must the Buyer wait an additional month before your willing to close? Are you refusing to upgrade? Marketing, this is a big one. Is the word getting out? Is your dwelling on multiple web sites? What about MLS? Are there email campaigns and mail outs? This is the Realtor’s responsibility if you are using a Realtor. Is she or he doing as advertised? You are paying a 6% commission in which 3% goes to the selling Realtor. Is he or she earning their money? Is he or she advertising your dwelling correctly? This is a very important factor and this factor should not be taken lightly. However the king of all the factors is price. All of the other factors can be cured with the right sales price. The weakness with the other factors lowers the value. All homes will sell with the correct market price. The market dictates the value. Buyers tend to look at many houses. They can determine what falls into what range. Spotting a home priced incorrectly is very easy and if the Buyer is using an FHA insured loan to purchase, the price better be right. FHA will not approve a loan if their estimate comes out lower than the sells price. Someone needs to make up the difference and usually the responsibility falls onto the Seller. The Buyer usually does not have the cash to make up the difference.
If your house has expired, the Seller must step back. I know that can be hard to do. You lived there for many years, raised your children, and enjoyed a life. Emotions get the best of you, it may be worth $200,000 to you, but will the average Buyer appreciate the same thing. To them your house is just another product, the proverbial widget which one day could become their abode. However the house is not theirs yet. Maybe the price should really be $150,000? I know it can be hard to face market value prices. Sometimes the market value is less than what you owe and that’s a tragic situation. The market values is what the market value is and if the price is too high the house will sit with few showings and no offers, the hard questions come into play. Can we wait to pay off a little more of the loan? Can we afford to make up the difference between the sale and what we owe? Should we consider other alternatives such as short selling or God forbid foreclosure? However if you are not in one of those situations, this is the time to do some real soul searching. What is the reason your home did not sell? Sit back with an objective eye and be honest with yourself. Then you will find the answer.